Quick comment: what are the priorities for reforming state taxes?

9 June 2015

States and territories provide a range of essential services to Australians with the revenue to fund these services coming from a variety of sources. What do you think are the priorities for reforming state taxes and why?

9 thoughts on “Quick comment: what are the priorities for reforming state taxes?”

The “Re:think Tax discussion paper” dated March 2015 in the “Executive summary” at page 2 says:
Quote: The Government’s review of roles and responsibilities across the Federation provides a [sic] once in a generation opportunity to examine the whole of the tax system. The White Paper on the Reform of the Federation is considering options to achieve a more efficient and effective federation, which supports Australia’s growth and living standards. Any changes to roles and responsibilities of the Commonwealth and states and territories may have revenue and tax implications. The white paper processes on Australia’s Federation and taxation are proceeding in tandem and, as such, provide a unique opportunity to inform a system wide approach to taxation. UnQuote.

To answer this week’s “quick comments” question, I feel that we need to examine comprehensively what taxes and financial functions the Commonwealth has assumed from or on behalf the States and Territories and simultaneously, what financial appropriations the Commonwealth has obligated itself to the States vis a vis Commonwealth’s intrusions into State roles and functions as recorded in the Australian Constitution. Moreover, the Australian Government says that tax reform examination should be confined to the last 40 years (at page 1). However, I believe that this limitation is too narrow and for the following reasons.

In 1942 when the Commonwealth was desperate for funds to finance primarily the war against Japan, the State governments acceded to the Federal Labour Government request to hand over their income taxing powers on the proviso that the Federal Government would return State income tax raising powers back to the States on cessation of hostilities. However, the Federal Labour Government in the late 1940s reneged and subsequent Commonwealth governments have kept such powers to itself ever since. Prior to World War II, State governments relied on various common and in some instances peculiar State taxes and rates to balance their budgets in order to stimulate State economic growth, meet their other statutory obligations, and their Australian Constitutional functional responsibilities. Today, State (and Territory) governments are beholden to the Federal Government for Commonwealth grants, disbursements and apportionments, etc. Moreover, States are also limited as to how much they can borrow. Similarly, Local governments are restrained in what rates and other charges that they can levy and how much they can borrow. So when State and Local governments exceed their budget and it appears that they will not be able to return to a balance budget in the current economic cycle, they in turn devise new taxes under various guises (viz duties, fees, levies, fines and royalties) and increase the rate or charge of existing taxes, fees, fines, etc.

I feel that before we can discuss at a Commonwealth level on what tax reforms at the State level are needed or should happen throughout the Commonwealth (ie in NSW or QLD or WA or elsewhere), Federal-State financial arrangements and simultaneously, Federal government involvement in matters that the Constitution says are State functions, need to be comprehensively discussed first. That should be the “priorities for reforming state taxes”.

I believe that Federal Government should, as part of the current “Re:think – Better Taxes-Better Australia” discussion process, open discussion on:

1. Returning income taxing powers of individuals back to the States (even for good public administration, the ATO remains the collecting administrative agency);

2. Returning the amount of GST collected in that State back to that State;

3. Abandoning the current State financial appropriation equalisation (or whatever is the correct title cum description) scheme;

4. Stopping funding and directing State functions as listed in the Constitution; and

5. Ceasing “pork-barrelling” (in the form of projects or the relocation of agencies or parts thereof) in those States that have political problems due to their poor management or crazy ideological objectives and as result have ramification to the contemporaneous Federal government’s political well-being.

Putting aside my views on the above high level federal-state financial and other matters; I now wish to turn my attention to which State taxes should be reformed.

I feel that [NSW] Payroll Tax is a disincentive for small commercial entities wishing to grow (and thus employ more staff). I can see the day when successful small businesses wishing to expand their activities in their location to opt to sub-contract worker (either in Australia or overseas) and/or use mechanical robots.

I also feel that [NSW] Land Tax is a cost paid by the residential property providing landlord but borne by the renter. In NSW we have enough social problems in not being able to provide affordable housing close to low wage employment opportunities; and Land Tax is one of those unfortunate imposts. Moreover, I also believe that reforming Land Tax to exclude only those providing residential housing but not to owners owning a second house, will lead to “land-tax” avoidance schemes.

Shouldn’t we really be considering how much money is wasted by the States existence, the reform should be root and branch. Get rid of States- period. The amount of money spent over governing our tiny (population) country is madness!

On the basis that this won’t happen, we should increase the coverage of GST to everything which we purchase excluding health outcomes and staple foods. Luxury foods and prepared restaurant food should be GST targeted. Services should be included the range should mirror the range of services in the UK for VAT. The GST carve up should be per capita and should not be expected to cover heath or education. As previously said health and education should not be post code driven it should be a Federal cost.

Negative gearing has to go, except for new build (to increase and maintain quality housing stock) and the gearing must be only be available against the income derived from the property specifically, not just “income” First time buyers grants don’t help people to buy they increase housing costs in the same way that child care subsidies don’t decrease costs they encourage costs to rise. The removal of negative gearing on all but new homes would reduce the cost of homes in general as only real investors would be able to buy “investment” properties. the market would ease immensely. lets be honest if people can’t afford to buy a house at current interest rates its the cost of housing as a part of income which is the problem, not the interest rates. I’m guessing everyone in this forum recalls when interest rates were well over 10%… when the RBA says housing is too expensive we are in deep doo doo!

Remove payroll tax and all penalty rates, except normal overtime paid for working over 38 hours and public holidays (which should be moderated) and remove trading strictions such as those in QLD where shops one side of the highway can trade much longer than shops the other side?? Really?

And while we’re fixing up the states fix up daylight saving in SEQ. …..

Reforming State Taxes… are you kidding ? How and what is the point of ‘reforming’ something that is a proven failure over a very long time ? We know what does not work so why keep doing the same thing over & over again expecting a different result ?

Admit that conformist and orthodox tax methodology is no longer relevant in today’s E everything digital planet. Move on to something different for a start. Something innovative like a Financial Institution Transaction tax would be a good place to start.

It is simple, fair, unavoidable, current technology based and can raise many times more revenue at a much, much lower tax rate than current outdated systems. All current taxes are made redundant.

1. Vertical Fiscal Imbalance – Move responsibility and expenditure for Health and Education fully to the Commonwealth.
The current arrangements lead to significant disparity between the levels of service across state boarders, this is morally wrong, where you live should not affect the level of these essential services. This would come close to removing the current vertical physical imbalance (states relying on Commonwealth funds) and address the morality of inequitable services which are dependent on where people live.

2. GST coverage – it needs to capture most economic activities
GST should be applied on almost all goods and services, examples of major service carve outs that should be captured are Health and Education.
Capturing the service sector will reduce distortions in the economy and if the additional revenue raised is kept by the Commonwealth it could effectively fund the moved responsibility of health and education expenditure. This trade off a “state tax” is reasonable in light of recommendation to move all health and education spending from the States to the Commonwealth.

The most important issue regarding State Taxes is that all State Governments are overspending their budgets. This has to stop. Politicians and Public Servants do not have their jobs so that they can claim excessive salaries and expenses from the taxpayer, which has caused the massive deficits which currently exist.
The State Taxes should be limited to those imposed on land and a proportion of the Federal GST based on population. The user pays fees for car registration, electricity, gas, water, public transport etc should be maintained at a level which sustains the current infrastructure and service, but NOT to pay excessive (above $100,000pa for the top people) salaries and expense accounts.
The reduction of taxes will put more money back into taxpayer’s pockets, which will increase their spending ability, creating a greater demand for goods and services, leading to increased employment, which increases spending etc etc etc.

It seems obvious that if one wants the efforts to balance the budget to be evenly shared by society as a reflection of general solidarity , an increase of the GST is the best way to go . First , the GST has to paid by each of us as there is no loopholes and avoidance schemes available save for the under ground cash economy which does not apply within the whole consumptions spectrum . Secondly , the richer ( a term that desperately needs a consensual definition ) one is the more one consumes and thus has to pay more GST which introduces a sense of fairness.
However , it is obvious that GST is a tax that attached the service industry which until recently was not subjected to taxation as the manufacturing industry . It is also obvious that the future jobs which our economy will be able to create are within the service industry . As we all know any economic sector subjected to taxation will see its expansion reduced ; taxation never results in real economic expansion . In turn this means that an increase in GST will reduce the expansion of the service sector and thus future employment.
Furthermore , to protect fairness it seems obvious that any increase in GST should be targeted at the percentage applied as opposed to an elimination of products / services exemptions . These exemptions are attached to essential products and services and thus protect the less wealthy .
Finally , the concept that the Federal Government can withhold the transfer to a State of its share of GST when it objects to action taken by that State should be eliminated / prohibited . This happened under the last Labor Federal Government when some States increased mineral royalties . Furthermore the sharing of the GST between States should not be such that the thrifty States are penalised to the benefit of the not so thrifty States.

Need a clean slate and new thinking by cancelling all legislation on taxes except GST and introduce a transaction tax. A transaction tax on all bank accounts, credit cards, financial payments from any source would be more efficient than the current system. It would reduce the number of solicitors, accountants, auditors and clerks who could be better utilise in making all forms of systems more efficient and allow thought to be focussed on innovation and application. How to invent and build a better widget.

The most important tax reform should be the introduction of Federal death duties on SUPERANNUATION ASSETS. Even if this means the application of a formula to calculate the lump sum attributable to a member for super schemes that have been set up in trust to avoid the finalisation on the death of a member.

Federal taxes upon death should also apply to other assets but perhaps in a concessional way. That might be over a certain threshold.

No death taxes should however apply until the death of each partner in a relationship to avoid hardships caused by having to liquidate the assets of living partnerships.

Death duties will almost cover the inadequacies of most of the other taxes and they certainly do not tax the poor thus shifting the burden to the wealthy who have had the benefit of superannuation concessions.

1. Increase GST to 15% and reduce income taxes
2. Introduce land tax and remove stamp duty. Use the land tax to build infrastructure in outer suburbs.
3. Scrap Negative Gearing altogether.

Housing affordability is the biggest issue facing this country in the past 50 years. The cost of a home has risen due to:
1. Generous tax concessions from Negative Gearing and Capital Gains Tax Concessions on landlords
2. The associated costs of land tax of which are directly proportional to the cost of the house.
3. The unhealthy relationships between political parties and land developers. The developers drip feed the land supply into the market to sustain high land prices adding to the in-affordability issue. These relationships need to be severed and the developers need to be encouraged to stop land banking.
Negative gearing allows landlords to seek above market rents simply because they can afford to have their property vacant for extensive periods of time as they are financially sustained by the tax payer. Rents therefore remain artificially high despite low vacancy rates, thanks to negative gearing.